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Global airlines mark record year for fee-based revenues

By Kristen Leigh PainterThe Denver Post

Posted:
07/16/2014 05:53:09 PM MDT

Updated:
07/18/2014 03:09:38 PM MDT

In this Thursday, Sept. 27, 2012 photo, passengers travel through an airport in Miami. Private researchers, who have analyzed federal data on airline performance, say in a report being released Monday, April 8, 2013, that consumer complaints to the Department of Transportation surged by one-fifth last year even though other measures such as on-time arrivals and mishandled baggage show airlines are doing a better job. "The way airlines have taken 130-seat airplanes and expanded them to 150 seats to squeeze out more revenue I think is finally catching up with them, says Dean Headley, a business professor at Wichita State University, who has co-written the annual report for 23 years. (Associated Press file photo)

Airline passengers are forking over 1,200 percent more in fees now than they did seven years ago, an annual report released Wednesday shows.

Global airlines in 2013 raked in more than $31.5 billion in ancillary revenue — an industry term for a variety of add-on fees, such as a la carte options, the sale of frequent flier points and car rental commissions. That's up from $27.1 billion the previous year.

And while air travelers may now be somewhat familiar with the transactional fees that ultra-low-cost carriers like Frontier Airlines and Spirit Airlines ask customers to opt into — such as charges for soda, legroom and carry-on bags — more traditional carriers like Chicago-based United Airlines are tallying record revenues with a bit more covert fee tactics.

"Some of the biggest brands in the business are now engaged in all aspects of ancillary revenue," according to the study, conducted by Wisconsin-based IdeaWorksCompany. "Most global airlines rely on a buffet of activities with a large emphasis placed on checked baggage and the sale of frequent flier miles or points to partners."

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United tops the total ancillary revenue chart with more than $5.7 billion in 2013. Spirit, the U.S. airline people love to hate for its cost structure, elevated ancillary fees in the public's eye by unbundling — or taking apart — the services included in the airfare.

Being a smaller carrier, Spirit is the leader when it comes to ancillary fees as a percent of total revenue, making up 38.4 percent.

IdeaWorks trolled financial documents of 114 airlines from around the globe. Only 59 of those companies reported their revenue streams in such a way that they could be counted in the survey.

"The revenue results from Frontier are of poor quality," Sorensen said. "They don't disclose anything on their own, and I was only able to pick up some items from DOT, such as bags."

Spirit made $51.22 per passenger on ancillary fees. United also cracked the top 10 in this category, making an average of $40.97 off each passenger, largely from its credit cards.

"United Airlines has made its MileagePlus program into an ancillary revenue powerhouse," according to the report.

Co-branded airline credit cards in the U.S. now include perks consumers used to purchase themselves, like checked luggage and access to airport lounges. The banks now purchase these perks from the airlines, creating a lucrative revenue stream.

Wednesday's release is the preliminary report to the complete rankings, to be released in September.

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